Papa's Pessimism Pummels Producers

 | Dec 06, 2013 | 2:01 PM EST
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There's not much you can do about your stock if the CEO says that things are going back to normal after some turbocharged years.

That's pretty much what Mark Papa, the outgoing CEO of EOG Resources (EOG), said to The Wall Street Journal today when asked about the glut of oil in this country. "It was kind of like found money, and it wasn't going to last," he said about the fat profit margins producers enjoyed here before the glut developed.

When I read it, I was taken aback because EOG has already broken down from $185 to $165 when the glut developed. Yet it has the best properties in the country, and it's making fortunes. I don't think those fortunes are going to be negated by this glut. In fact, I think the production growth is what drives the stock, and it will remain stellar.

No matter. He killed his own stock as well as the stocks of Continental Resources (CLR), Pioneer Natural Resources (PXD), Cimarex Energy (XEC) and just about every other independent in a true bloodbath on a very up day.

I think that these stocks can snap back when the glut is alleviated by more pipe flowing to the Gulf refineries, although right now, they are the best game in town. I would not blow out of EOG and reiterate that I think Linn Energy (LINE) is a terrific stock to buy ahead of the closing of the Berry Petroleum (BRY) deal next month.

Papa is too good to ignore. But he's been pretty negative about a lot of the good news in oil of late, so I would take his pessimism with a grain of salt. Don't forget that there are a ton of major oil companies that are looking to buy here, including perhaps EOG.

That said, you can't battle them on the day when Papa lowered the boom.

Too brutal. Too much selling left for them to bottom.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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